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Tuesday, July 19, 2016

Raghuram Rajan — The changing paradigm for financial inclusion

Speech by Dr Raghuram Rajan, Governor of the Reserve Bank of India, at the National Seminar on "Equity, Access, and Inclusion - Transforming Rural India through Financial Inclusion", organised by the National Institute of Rural Development and Panchayat Raj, Hyderabad, 18 July 2016.

We are steadily moving from mandates, subsidies, and reliance on the public sector banks for inclusion to creating enabling frameworks that make it attractive for all financial institutions to target the excluded, even while the interests of the excluded are protected through education, competition and regulation. I am confident that in the foreseeable future, we will bring formal financial services to every Indian who wants them. Financial inclusion will be an important element in ensuring access and equity, necessary building blocks for the sustainable growth of our country. Thank you. R. Rajan [bold added]

No, I don't think he does quite get it. He wants to make rural India safe for private banks so as to increase low cost lending. In principle that is fine but not so fine at all if the private banks in India are privileged as they are in the US, UK and I suppose nearly everywhere else. Then the lower cost loans are the result of stealing from the less so-called credit worthy for the benefit of the banks and the most so-called credit worthy, the rich.

Andrew, there is more to the world than banking liabilities. Bank privilege plays an outsize role in your comments, less so in the real world. Banks are capital constrained. Their capital is at risk, and no one subsidizes their bad investments. Their assets are far more important than their liabilities, the asset side of the balance sheet is where we do not want to subsidize and we want to impose discipline. When a loan sours, they lose. That is what matters. The asset side of the balance sheet is important, not the liability side. You are absolutely obsessed with bank liabilities, get over it. Depositors and availability of loans from the Fed are not a risk to the banks in a modern monetary system like ours with non-covertible and floating fiat currency, the liability side, that you whinge about, nothing interesting to think about there, to even discuss.

Their capital is at risk, and no one subsidizes their bad investments. Their assets are far more important than their liabilities, Ryan Harris

Individual banks can and do go bust because the liabilities they create ("loans create deposits") are VERY REAL among themselves and to other account holders at the central bank such as the monetary sovereign (e.g. US Treasury) and to the central bank itself.

But wrt the public, those liabilities are LARGELY only a SHAM since the public may not have accounts at the central bank and thus may only deal with fiat in unsafe, inconvenient physical form. a.k.a. cash.

So Ryan, how can we have honest accounting between the usury cartel and the public with liabilities that are largely a sham? And if the accounting is dishonest then what hope is there for systemic stability? Much less social justice and stability?

Asset side discipline is simply an attempt to regulate government subsidized thievery to make it more stable. As if a thieving system should or even can be stable?!

But so what? That would only mean the banks would be expert lenders of legally stolen purchasing power, nothing more.

Suppose, for example, a bank was expert at making loans for automation such that it never experienced a loan loss. Would you call that good? When workers were dis-employed with what is, in essence, the PUBLIC'S credit? With what, in essence, is their own legally stolen purchasing power?

They loot by fraud, when they commit fraud (which they many times do). Otherwise they are not 'looting' anything, banks are starving of interest income now.

Is all upo to the governments how much banks earn or do not earn through CB policy. The cost of financial capital right now is so cheap that they earn absolutely nothing and are falling apart as an industry because of it, being mostly zombified.

There is nothing stopping governments for squeezing the banking sector as much as they want, the same way there is nothing stopping them from issuing T-Bills if they really wanted; except the revolving doors and corruption.

There is nothing inherently wrong or dishonest with the system, is influence on the legislative and executive branches which is dishonest about it. Pop it if you will, and you will change absolutely nothing because something similar.

Is a political and social problem, not a financial one. Monetary tricks won't change that (btw the same goes with MMT, you can get all applied MMT you want, if it's applies wrongly nothing is changed, and is even for the worse as Military Monetary Theory has demonstrated over and over).

The IRS accepts bank checks, fed wire transfers, credit cards payments, and ACH payments for taxes at zero discount to hard currency or short term treasury bills which can also be used.

There is no sham or funny business happening.

It's a smart, well designed system banking system that our grandparents left us. While not perfect, we should all be thankful for their wisdom and careful planning, it could be much worse had they left us with a gold standard or other semi convertible system.

The US Treasury accepts its own fiat - Period. That's why it has an account at the central bank so it can deal with its fiat in an inherently safe, convenient form - an account balance.

There is no sham or funny business happening. Ryan Harris

When physical fiat, aka cash, is abolished then bank liabilities toward the public will be entirely fraudulent since the public will not be able to redeem them for fiat. As it is, since cash has not yet been abolished, it can only be said that bank liabilities to the public are largely fraudulent since the public can still get unsafe, inconvenient physical fiat to some degree.

it could be much worse had they left us with a gold standard or other semi convertible system. Ryan Harris

Who the heck is arguing for a gold standard? Not me. I'm arguing for the allowance of accounts for all citizens at the central bank and the abolition of government-provided deposit insurance and other privileges for depository institutions.

In other words, I'm arguing for equal protection under the law. Opposed to that are you?